How Are Automatic Stabilizers Used To Combat Inflation? :: essays research papers

How are Automatic Stabilizers use to Combat Inflation?In todays economy, there are devices present called machine riflestabilizers. Automatic stabilizers, are mechanisms which aid in the correctionof an economic paradox without the interference of anyone or anything. They areperhaps most useful to rubbish necessity - pull inflation. Demand - pull inflation,is when prices rise because the economy cannot bring enough goods to satiatethe economy. An automatic stabilizer, that is beneficial to combat such aproblem, is a progressive tax. A progressive tax, is a tax that becomes ahigher rate for each increasing level of unadulterated national product. If such a taxis present within the economy, when the society becomes more(prenominal) prosperous, such asin the situation with demand-pull inflation, the citizens are taxed more, hence lessen the marginal propensity to consume, and decreasingconsumption. The marginal propensity to consume is the figure of any changein disposable in come spent for consumer goods. If this falloffs, demand givenot be as high supra, or even above where the supply is, therefore reducing thedemand - pull inflation.Another path to stabilize demand - pull inflation is to reduce governmentspendings. governance spendings, are the spending that the government make withthe tax revenues, and they add to the gross interior(prenominal) product. An automaticstabilizer that will lower gross domesticated product is welfare. As income rises,there are less people who essential welfare, therefore reducing the amount ofgovernment spending, and lowering the gross domestic product.Due to such automatic stabilizers as progressive tax place and thedecrease of government spending due to welfare, therefore a decrease ingovernment borrowing, therefore a decrease in the demand for the dollar,therefore a decrease in the interest rate, which would cause a decrease in theforeign demand for dollar, which would cause the dollar to depreciate, thereforel owering inflation due to a less valuable dollar.